Asia MEG falls below $750/tonne on crude values, oversupply

26 May 2010 12:41[Source: ICIS news]

SINGAPORE (ICIS news)--Asian prices of monoethylene glycol (MEG) have broken the psychological barrier of $750/tonne (€608/tonne) as a result of plunging crude values and severe oversupply in China, market sources said on Wednesday.

A deal between traders was heard at $740/tonne CFR CMP, according to sources.

“It is unavoidable that MEG prices have continued to head south after hovering between $750–780/tonne CFR CMP for more than a week. The market is under too much downward pressure,” said a major trader in the region.

“?xml:namespace>China’s MEG storage tanks remain filled to the brim. Most buyers have learned the lesson of booking tanks before buying any fresh cargoes,” said the trader.

Port inventories have remained at full capacity – around 600,000 tonnes – for almost two months, he added.

China imported a total of 633,700 tonnes of MEG in April, according to a regional source. It was the second month in a row that the country’s MEG imports exceeded its total monthly consumption of 600,000 tonnes.

Some Zhejiang-based end-users said they sold their contract cargoes to the spot market recently.

One end-user explained that he had signed 120% of his requirement through contracts this year in order to secure a stable supply and prevent engaging in the volatile market.

“We are looking to sell some feedstock as we expect our sales to decline in June…the peak demand season for polyester yarn products has ended,” the end-user said.

Capital concerns were expected to be the next headache, according to another trader.

“A number of 90-day LC (letter of credit) payments are due in May,” he said, adding that the deals for February shipments were mostly made in January, when market sentiment was bullish.

“So far, there are no desperate offers in the market, but they might emerge if prices continue to dive,” said a market source.

Trading of September MEG contracts on the China Oriental Silk Market – the only electronic local MEG trading platform – was halted on Wednesday afternoon after prices fell by 4% to CNY6,360/tonne ($931/tonne), according to data from the market's website.

“Sentiment was poor these [past few] days and the whole industry is watching closely the trend in crude values and financial markets,” said a Jiangsu-based end-user.